Business Term Glossary

The par value multiplied by the number of authorized shares. The amount is important in determining initial fees and annual franchise taxes in many states.

Annual Meeting of Shareholders

Nearly all states require a corporation to hold an annual meeting of shareholders, where directors are elected and shareholders vote on other corporate issues.

Annual Report

A mandatory annual state filing, usually requiring information on the company's directors (for corporations), members or managers (for LLCs) and financial status; can also refer to an annual statement of business and affairs furnished by a corporation to its shareholders.

Apostille

A method of certifying a document for use in another country so it is recognized in the country of intended use, and no additional certification or legalization by the embassy or consulate of the foreign country is required. An apostillized copy of the Articles of Incorporation or Articles of Organization is often needed to open a bank account in another country for a US-incorporated business. Note: some countries require a certified copy of the Articles of Incorporation/Organization with an appropriate gold seal instead of an apostillized copy.

Articles of Incorporation

The document that must be filed with the appropriate state agency in order to create a corporation. Includes basic information about the corporation as required by state law. Also sometimes called a Certificate of Incorporation.

Articles of Organization

The document that must be filed with the appropriate state agency in order to create a limited liability company (LLC). Includes basic information about the LLC as required by state law. Also sometimes called a Certificate of Incorporation.

Asset

Anything with commercial or exchange value that is owned by a business, government, institution, or individual (e.g., stocks, bonds, real estate, equipment, a brand name, or the value of a company as an operating business).

Assumed Name

The name other than the legal name that a company uses to conduct business. Assumed names (also called a fictitious business name, doing business as or DBA) can be filed at the city, county or state level depending on state requirements. A company can typically use multiple assumed names.

Authorized Shares of Stock

Total number of shares a corporation is authorized to issue, as specified in the articles of incorporation. All authorized shares need not be issued to shareholders; the corporation can have unissued shares that can be distributed later.

The governing body of a corporation. Directors, who are elected by shareholders, are responsible for the primary decisions of a corporation. The directors appoint officers who handle the day-to-day operations of the corporation.

Business Entity

An organization that has an existence separate from that of its owners (e.g., corporations and limited liability companies).

Business Licenses

A general business license, similar to a use tax, assessed annually for the privilege of operating a business in the jurisdiction. A special license is issued to a business that will provide products or services that require regulation (e.g., doctors, lawyers, barbers, etc.)

Business Permits

State and local governments regulate the safety, structure, and appearance of the community through the use of local laws, called ordinances. Zoning ordinances, which regulate how property can be use, are a common type of ordinance. Once the jurisdiction determines that you have complied with such ordinances, it will issue a permit that will enable you to operate your business.

Business Plan

A written document that details a proposed or existing venture. It will typically explain the vision, current status, expected needs, defined markets, and projected business results.

Bylaws

The rules and regulations adopted by a corporation for its internal governance, usually containing provisions relating to shareholders, directors, officers and general corporate business. Bylaws are adopted at the corporation's initial meeting and should be updated regularly.

A standard business corporation; called a C corporation because it is taxed under subsection C of the IRS code.

Capital Gains or Losses

Gains or losses realized from the sale or exchange of capital assets. The amount is determined by calculating the difference between an asset's purchase and sale price.

Capital Stock

Total number of shares a corporation is authorized to issue, as specified in the articles of incorporation. All authorized shares need not be issued to shareholders; the corporation can have unissued shares that can be distributed later.

Certificate of Authority or Application for Authority

Companies incorporated in one state but transacting business in other states must file for a certificate of authority in the other states. A company is considered "foreign" in all states except the state of incorporation, and it must register to transact business (foreign qualify) in other states. A certificate of authority is a document issued by the proper state authority to a company incorporated in another state who wishes to transact business in that state.

Certificate of Good Standing

A certificate issued by a state official as conclusive evidence that a company exists or is authorized to transact business in the state. The certificate generally sets forth the company name; that it is incorporated and authorized to transact business; that all fees, taxes and penalties owed the state have been paid; that its most recent annual report has been filed; and, that Articles of Dissolution have not been filed. Also known as a Certificate of Existence or Certificate of Authorization.

Common Stock

The primary stock of a corporation. Purchasing stock in a corporation makes you a shareholder (owner).

Compliance Kit

A binder containing essential items for the routine maintenance of a corporation, limited liability company (LLC), limited liability partnership (LLP) or limited partnership (LP). The Compliance Kit includes a binder for storing company documents, a company (compliance) seal for embossing documents, sample minutes and resolutions, ownership certificates and an ownership transfer ledger.

Compliance Seal

A device made to either emboss or imprint certain company information onto documents. This information usually includes the company name and date and state of incorporation.

Conversion

The process of converting a corporation to an LLC or converting an LLC to a corporation. Not all states allow this procedure, and fees vary within the states that do.

Corporate Record Book

The corporation should have a record book that includes a copy of the articles of incorporation, bylaws, initial and subsequent minutes of director and shareholder meetings and a stock register. Maintaining the proper records is very important to preserving corporate status which ensures limited liability protection for corporate shareholders.

Certain states allow for a business to choose an effective date, after the date when the incorporation documents are filed, for when the business will officially be formed as a corporation or LLC in that state.

Directors

Directors are elected by the shareholders. They manage or direct the affairs of a corporation and typically make only major business decisions. They elect and monitor the activities of the officers.

Dissolution

The termination of a company's legal existence. Dissolution may be caused in many ways including: failure to file annual reports or pay certain taxes, bankruptcy, or voluntary dissolution of the company by its owners or directors (corporations) or managers (LLCs).

Dividend

A distribution of money or property paid to shareholders by a corporation out of the corporation's profits. Shareholders must typically pay personal income tax on dividend payments, which creates double taxation of the corporation's profits. Tax is paid first by the corporation on its income, and when remaining income is distributed as dividends, the shareholders also pay tax on the dividends they receive.

Doing Business As (DBA)

A DBA, also called an assumed name or fictitious business name, is typically completed by making a filing at the county level in the county where the business is located. The filing does not change the official name of the company, but allows the company to conduct business using an additional/different name. For sole proprietorships, filing a DBA allows the owner to transact business using a name other than his/her personal name.

Domestic Corporation

A corporation is considered domestic in the state where it has incorporated.

Double Taxation

C corporations are treated as a separate legal taxable entity for income tax purposes and pay tax on their income. If corporate income is then distributed to shareholders as dividends, shareholders pay income tax on the dividend amount, creating double taxation of the corporation's income. S corporations and LLCs are pass-through entities that are not subject to the double tax.

The Federal Tax Identification number (FEIN), also often called the Employer Identification Number or EIN, is a number assigned to a business by the federal government for tax purposes. It basically is a Social Security Number of businesses and is required on all federal tax filings. Additionally, banks generally require a tax identification number to open a business bank account.

Fictitious Name

A fictitious business name or fictitious name, also called an assumed name, doing business as or DBA, is typically completed by making a filing at the county level in the county where the business is located. The filing does not change the official name of the company, but allows the company to conduct business using an additional/different name. For sole proprietorships, filing for a fictitious business name allows the owner to transact business using a name other than his/her personal name.

Fiscal Year

Any 12-month period used by a business as its fiscal accounting period.

Foreign Corporation

A corporation is referred to as a foreign corporation in all states except for its state of incorporation. If a corporation is transacting business in a state other than its state of incorporation, it must register for a certificate of authority (foreign qualify) to transact business in the other state.

Franchise Tax

A tax on the privilege of carrying on business as a corporation or LLC in a state. The value of the franchise tax may be measured by amount of earnings, number of shares outstanding, total value of capital or stock, or by amount of business done. In some states, the franchise tax is simply an income tax.

A corporation that owns a large number of shares in another company or other companies. Holding companies use the voting rights that come with their shares to exert influence over the companies under them.

A business entity formed upon filing Articles of Organization with the proper state authorities and paying all fees. LLCs provide limited liability to their owners (members), and are typically taxed like a partnership, preventing the double taxation that C corporations incur.

Limited Liability Partnership (LLP)

A limited liability partnership is a business entity created by means of a state filing. Many states restrict creation of LLPs to professional services businesses, or those professions requiring a state license to practice, such as architects, accountants, attorneys, dentists, doctors, etc.

Limited Partnership (LP)

A limited partnership is a business entity created by means of a state filing where at least one partner is a general partner with unlimited liability and at least one partner is a limited partner whose liability is limited to the amount of his/her investment in the LP. Limited partners are typically "silent partners" who do not participate in the management of the LP.

An LLC may be operated by a group of managers who act much like a corporation's board of directors. LLCs must outline in their Articles of Organization whether the LLC will be member-managed or manager-managed.

Member

A person or entity who is an owner of some or all of a LLC. The business decisions of an LLC are made by the members unless the Articles of Organization specify the LLC will be controlled by managers.

Membership Interest

A member's ownership of an LLC is represented by "interests," just as a partner has an interest in a partnership and shareholders own stock in a corporation.

Merger

Occurs when two companies join into one, with one company surviving and the other disappearing. The assets and liabilities of the disappearing entity are absorbed into the surviving one.

Minutes

A written record detailing events. Corporations must hold an initial/organizational meeting as well as annual meetings of directors and shareholders. Having minutes from these meetings documents the events and business decisions that happened at the meeting. Other business types, such as LLCs, LLPs and LPs are also recommended to hold and document annual meetings of their owners and managers as well. Minutes should then be kept in the company's record book.

Most states allow a name for a corporation, LLC, LLP or LP to be reserved for a period of time before the incorporation documents are filed. Name reservation timeframes vary by state, but are often 120 days. The name is reserved by filing the correct paperwork and paying the necessary state fee.

Nonprofit (or Not-For-Profit) Corporation

A corporation organized for some charitable, civil or other social purpose that does not entail the generation of profits. These corporations can apply for tax-exempt status at the federal and sometimes at the state level. To create a nonprofit, not-for-profit Articles of Incorporation must be filed with the state.

No-Par-Value Stock

Stock with no minimum value. Most states allow no-par stock. If the stock is no-par stock then the amount of stated capital is typically an arbitrary amount assigned by the board of directors. Some states, though, assign a value of $1.00 to stock when filed as being no-par-value stock. Further, the value of capital for no-par-value stock for franchise tax purposes is determined by the state and may result in higher franchise taxes in comparison with low par-value stock.

Officers, who are appointed by a corporation's directors, are responsible for managing a corporation's daily affairs. A corporation's officers usually consist of a president, vice-president, treasurer, and secretary, but now may also include "C" titles, such as Chief Executive Officer or CEO. In most states, one person can hold all officer posts.

Operating Agreement

An agreement among the members of an LLC that outlines ownership percentages, how the LLC will be managed, the process for allowing new members and other LLC governance details. It is analogous to corporate bylaws.

Organizational Meeting

The initial meeting of a corporation's directors where the formation of the corporation is completed. At the organizational meeting, many initial tasks are completed, such as: ratifying the Articles of Incorporation, approving bylaws, issuing initial shares of stock to shareholders, electing officers, and authorizing a resolution for the opening of a business bank account.

Organizer

The person/entity that prepares, signs and files with the state an LLC's Articles of Organization.

An association of two or more persons where the business and the owners are legally the same. A general partnership comes into existence without filing any formal papers with the state. Partnership owners are personally and fully liable for all business debts, so personal property could be taken to pay business debts.

Pass-Through Taxation

Taxation in which a company's income is not taxed at the entity level. Instead the company's income or loss is "passed through" the business and reported on owners' personal tax returns. Any tax due is then paid tat the individual level. Even though no tax is paid at the business level, some business types, such as S corporations, multi-member LLCs and partnerships still need to complete and file an informational tax return with the IRS.

Preferred Shares

A class of shares that entitles holders to preferences over the holders of common shares, usually with regard to dividends and distributions of the company's assets upon dissolution or liquidation.

Professional Corporation (PC)

A corporation organized to engage in a profession that requires a state license in order to practice, such as architects, accountants, attorneys, doctors, etc. In order to create a PC, Articles of Incorporation must be filed with the state and there are often other state's requirements to meet, such as approval from the state's licensing board for that profession.

Professional Limited Liability Company (PLLC)

An LLC organized to engage in a profession that requires a state license in order to practice, such as architects, accountants, attorneys, doctors, etc. In order to create a PLLC, Articles of Organization must be filed with the state and there are often other state requirements to meet, such as approval from the state's licensing board for that profession. Not all states allow PLLCs.

Most states require corporations, LLCs, LLPs and LPs to have a registered agent in the state of incorporation. The agent is responsible for receipt of important legal and tax documents on behalf of the business. The name and address of the registered agent is included in a company's incorporation documents, and qualification documents, if the company is registering to transact business in another state, and is public record. The registered agent must have a physical address in the state of incorporation or state of qualification and be at that address during normal business hours.

Registered Office

The address included in a company's incorporation documents for the registered agent. The registered office need not be the company's principal office or place of business.

Reinstatement

Returning to good standing with the state an incorporated or qualified business (such as a corporation, LLC, LLP or LP) that has been administratively dissolved or had its Certificate of Authority revoked.

Resolution

A resolution is a formal decision of a corporation or LLC adopted by either a corporation's shareholders or board of directors or an LLC's members or managers. Resolutions should be kept in the company's record book.

A corporation that receives special tax treatment with the IRS. S corporations are taxed under Subchapter S of the Internal Revenue Code and allows for pass-through taxation, where no tax is paid by the corporation on its income. Corporate income/loss is reported on the owner's personal tax return and any tax due is paid at the individual level. S corporations must file an informational federal tax return however.

Share

Ownership interest in a corporation. The total ownership of a corporation is divided into shares of stock.

Shareholder

Any holder of one or more shares in a corporation, making him/her an owner of that corporation. A shareholder usually has evidence that they are a shareholder in the form of a stock certificate. A shareholder is sometimes also called a stockholder.

Sole Proprietorship

A business carried on by the owner as an individual. In a sole proprietorship, the owner and the business are legally the same. The owner is personally liable for all business debts, meaning his/her personal property could be taken to pay business debts.

Stated Capital

The par value of shares multiplied by the number of shares outstanding.

Stock

An equity or ownership interest in a corporation, measured in shares. Ownership of shares is demonstrated by stock certificates.

Stock Certificate

A document that shows ownership of shares in a corporation.

Stock Transfer Ledger

A record book, also called a stock transfer book, which lists the owners of shares of stock in a corporation and their number of shares.

Stockholder

Any holder of one or more stock shares in a corporation, making him/her an owner of that corporation. A stockholder usually has evidence that they are a stockholder in the form of a stock certificate. A stockholder is also often called a shareholder.

Subsidiary

A corporation that is either wholly-owned or controlled through ownership of a majority of its voting shares, by another corporation or business entity.

Any organization determined by the IRS to be exempt from federal taxation of income, based on IRS acceptance of Form 1023. A tax-exempt organization may be required to operate exclusively for charitable, religious, literary, educational or similar types of purposes.

Action taken by shareholders, incorporators or initial directors to end the existence of (dissolve) a corporation; action taken by members or organizers to dissolve an LLC; or action taken by partners to dissolve an LLP or LP. The process is completed by filing articles of dissolution with the state of incorporation (and state of qualification, if the company has registered to transact business in a state or states other than the state of incorporation).

Voting Rights

Shareholder rights to vote their shares, pursuant to provisions of state statutes, the corporation's Articles of Incorporation and its bylaws.

The statutory procedure in which a corporation or LLC that has registered to transact business in a state other than its state of incorporation obtains a state's consent to end the company's authority to do business there.